Moved by Baroness Altmann
3: Clause 1, page 1, line 7, leave out from the first “of” to end of line 8 and insert “earnings obtaining in Great Britain, as adjusted to take account of the exceptional impact of the COVID-19 pandemic on the level of earnings.”Member’s explanatory statementThis amendment is intended to maintain the link between pension uprating and earnings but requires the Secretary of State to make adjustments that are considered appropriate for distortions in the traditional ONS Average Weekly Earnings figures, which were caused by the exceptional pandemic effects and Government measures on the labour market.
My Lords, I rise to move Amendment 3 and give notice that I intend to divide the House on this amendment. I am enormously grateful for the support of colleagues across the House, including the noble Baronesses, Lady Wheatcroft and Lady Janke, and the noble Lord, Lord Hain. I am, of course, grateful to my noble friend and the officials who have engaged with us over the past weeks on this Bill. However, I still believe that these amendments are necessary. Amendment 3 would retain the earnings link uprating for the state pension triple lock rather than removing it as the Bill proposes.
I appeal to noble Lords on these Benches, as well as across the House, to recognise that these amendments are seeking to protect a solemn manifesto commitment made at the 2019 general election. Amendment 3 would preserve the important social security principle and the triple-lock promise of protection for the basic and new state pensions against rises in average earnings. Amendment 4 is consequential on Amendment 3. It was accepted by the Whips yesterday but, if the Minister does not agree, I ask her to confirm that and explain why she might not accept it when she responds. It would permit the Secretary of State to adjust the traditional average weekly earnings statistics produced by the Office for National Statistics, which have been used for uprating in past years, for the effect of the pandemic, which has upwardly biased the figures.
This Bill was perhaps not necessary. In the Social Security Administration Act 1992, which we are being asked to revise through the Bill, Section 150A (8) explicitly allows the earnings statistics to be adjusted. The legislation states that when reviewing how to uprate the state pension each year:
“the Secretary of State shall estimate the general level of earnings in such manner as he thinks fit.”
So this is not a question of having to use the 8.3% earnings statistic.
When Members of the other place voted on this Bill to abandon the manifesto pledge to 12 million citizens, they did so on three bases which I believe are flawed. First, they were led to believe that no alternative was available to using the 8.3% figure but, as I have just demonstrated, the Act would permit that in any case. However, to be helpful, we have laid Amendment 4, which explicitly states that, for the year 2022-23, should the Government believe that the earnings figures are distorted, they may adjust for the effect of the pandemic.
The second basis was that the other place was told that the 3.1% figure would still protect against rises in the cost of living. Indeed, when summing up, the Minister said that the so-called double lock of CPI or 2.5%
“will ensure that pensioners’ spending power is preserved and that they are protected from the higher cost of living”.—[
This also does not stand up to scrutiny. Since that debate, the inflation outlook has significantly deteriorated, but on further examination it is clear that September’s 3.1% CPI figure was downwardly biased by the effects of the pandemic. For example, there was a sharp fall in hotel and restaurant costs, as well as in household services, which hardly form a major part of most pensioners’ budgets. In his Budget speech, the Chancellor said that inflation in September was 3.1% but is likely to rise further. The OBR said:
“We expect CPI inflation to reach 4.4 per cent next year” warned that it could peak at close to 5% and added that
“it could hit the highest rate seen in the UK for three decades.”
That is around 7.5%. Last month, gas and electricity bills rose by 12%. Food prices are rising, and the OBR warns of a further rise in the energy price cap next April. Yes, this is for one year only, but what a year to choose to do this, while older people are facing a cost-of-living crisis and the protection that they were relying on is being removed.
The third basis was that not doing this would cost £5 billion per year and that earnings fell last year, but pensioners received a 2.5% rise, so they will have money taken from them next year as some kind of payback. Using an adjusted figure would still save several billion pounds relative to the £5 billion cost. But after seeing alcohol and fuel duty cut in the Budget and the bank surcharge allowance raised, and adding up the amount of Exchequer savings that those measures entail, half the cost of not honouring the triple lock will cover the costs of just those three measures. I appeal to noble Lords across the House: is this really the country that we believe that we should be living in? Is that the priority for public spending?
This is also a perfect example of our role. If we are scrutinising legislation that has come over to our House and which we believe that it is flawed, that it was perhaps passed through on a false premise, or if circumstances require us to send it back for reconsideration, is that not precisely what we should be doing? Twelve million citizens depended on that commitment. We have a chance to ask the other place to reconsider, perhaps in the light of updated information. I hope that noble Lords across the House can support this.
My Lords, as no one else is getting up, I will. I support Amendments 3 and 4 and congratulate the noble Baroness, Lady Altmann, on her tenacity in pressing this issue.
I have made it clear at each stage of the Bill that, while questioning the rationale for the triple lock, I strongly support the double lock that links pensions to earnings or prices as crucial to maintaining or hopefully even improving pensioners’ living standards. If under the triple lock it is possible to raise pensions by the arbitrary figure of 2.5% in some years, I do not understand why what is proposed in the amendments is deemed to be not sufficiently robust by the Government. I have yet to hear a convincing response to the very strong case made by the noble Baroness, Lady Altmann, nor have I received any letter from the Minister today. I have just checked my phone, and nothing has come through.
If, despite assurances to the contrary, and when an alternative that did not use the 8% figure was clearly available, there was a jettisoning of any earnings link, it is not surprising that this has given rise to fears that the link could be scrapped at some future point, just as it was in 1980. As has already been pointed out, the case for maintaining some form of earnings link, in line with the amendment, is all the stronger given the anticipated increase in inflation. Many people on low incomes—pensioners and others—face a bleak winter, especially if inflation rises as high as 5%, as predicted by the Bank of England’s chief economist recently—and that is before taking account of the differential impact of inflation on those on low incomes, for whom fuel and food represent a disproportionate proportion of their budget, as noted already. They will struggle during the winter months without any additional help with fuel, as called for by National Energy Action, and when they finally get their uprating next April, it will not be enough to compensate. While it is very welcome that the Government have finally agreed to produce an impact assessment of the Bill, it is a shame that we have not got it to inform our debate today.
Echoing what I said in the first group of amendments, I hope that, despite what she said earlier, when responding to these amendments, the Minister will not once again trot out the statistics based on the so-called absolute measure of poverty, when she knows full well that pensioner poverty, on the relative measure, is on the rise over a longish time period. Rather than avoid the issue of pensioner poverty, as it is experienced relative to the rest of society, the Government should be working to prevent a further increase. This amendment provides them with a means of doing so.
My Lords, I would first like to apologise to your Lordships’ House for being unable to speak on the Bill at Second Reading and in Committee due to direct participation in Select Committee work. I am very pleased to follow my noble friend Lady Lister and to congratulate the noble Baroness, Lady Altmann, on bringing forward these cross-party amendments.
Although we in Northern Ireland make our own social security legislation, in all instances it replicates legislation here because the money comes from here. I look across the Chamber at the noble Lord, Lord Dodds; he and I were former Ministers in the Northern Ireland Executive with responsibility for pensions and all social security matters. We may have had the flexibility to bring in slight amendments, but we had to adhere strictly to the principles and policies because of the issue of parity.
I am pleased to support these amendments because, like my noble friend Lady Lister, I believe that pensioner poverty is deepening. In Northern Ireland, I see it day in, day out; people—particularly pensioners, many of whom have paid in over their lifetime’s work through national insurance contributions and tax—now find themselves reliant on the use of food banks. To say the least, the pandemic has worsened their situation; it has made mental illnesses more acute and people are unwell, and they also have less money for important items such as foodstuffs, which they require to survive.
I support these amendments because they are important for protecting pensioners, including the poorest, in line with an earnings figure that is adjusted for pandemic distortions. Protecting women and those who are the poorest in our society should be a mandatory obligation on all of us. There is a duty of responsibility to reject the proposal to remove the triple lock pension system. I say to the Minister and the Government Front Bench that this decision will impact most on those women who find themselves in the greatest level of poverty, who have already been subject to their entitlement to a pension dropping from the age of 60 to the age of probably 66 or 67, as per the Pensions Act 1995 of this Parliament.
I am therefore very happy to support these important amendments. There is a duty of integrity to protect all parties’ manifesto commitments and to amend the uprating Bill to ensure that all pensioners—people who have provided for all of us—are duly protected in the best financial way.
My Lords, I put my name to these two amendments for all the reasons that have just been outlined by the noble Baroness, Lady Altmann, and others who have spoken. It seems absolutely the right thing to do, on behalf of 12 million pensioners, to ask the other place to think again, after it spent just two and a half hours considering how to penalise 12 million people in this country.
It is only right that the link to earnings which was part of the manifesto promises should be preserved. In 1979, the Government of Margaret Thatcher abandoned that link. It was restored again in 2011, but the effects live on and, today, pensions are still below their relationship to earnings in 1979. The argument that this is a one-off does not hold water.
I will not repeat the argument that I used in the first group of amendments, save to say that this is not the time when we should make our pensioners poorer; when we can afford, apparently, to make bankers richer, and enable them to drink more champagne as they fly on short-haul flights in the UK, we really need to think again about whether pensioners should be made poorer. Make no mistake about it: the way inflation is headed, pensioners will be poorer.
The Minister talked about the CPI, but she was looking backwards. It is no good telling pensioners what prices have been; when we are talking about the money they will get in the future, the conversation needs to relate to where prices are going. Prices are going up much faster than the rate by which we are talking about raising pensioner income. For those reasons, it is absolutely right that this House should ask the other place to think again.
My Lords, I support the amendment in the name of the noble Baroness, Lady Altmann. I share with her the many years that we have been working on these issues, and I am anxious that we get the balance right on pension policy.
Amendment 3, which would restore the link between pension uprating and earnings, is essential. This link was removed back in 1980. It resulted in many years of pension rates failing to increase at the same rate as average earnings. At that time, I was at Age Concern England, where we ran campaigns calling for an end to pensioner poverty and for the link with wage movement to be restored. Sadly, when this link was finally restored, in 2011, it was done as part of the triple lock, whereby pensions would increase by average earnings increases, inflation or 2.5%, whichever of the three was the higher. For the last decade, wage movement has been stagnant, and the rate of inflation also quite low. At a time when wages were not increasing, we called on workers to pay for the triple lock, creating, in my view, intergenerational unfairness.
At Second Reading, I spoke about the Intergenerational Fairness Forum report, which made a number of recommendations, including that the triple lock be replaced with a double lock, whereby pensions increase at the rate of average earnings or inflation, whichever is the greater. I refer to my interests as stated in the register, and in particular to my role as president of the Pensions Policy Institute. In 2019, this organisation released a report entitled Generation veXed, which found that people born between 1966 and 1980, who entered the workforce before automatic enrolment and who have worked during a challenging economic climate, have poorer levels of retirement savings when compared with the generation that went before them. This Generation X cohort have been asked to fund the current triple lock, while their ability to save for their own retirement has been, sadly, rather poor.
Retirement policy requires a balance and should not change with each electoral cycle. The situation we find ourselves in today, with the Covid-19 pandemic, is that the Government expect significant wage movement. Of course, this is due not only to the pandemic; it is due also to rising prices caused by Brexit, which will put pressure on employers to increase wages.
Amendment 3 would ensure that the link between pensions and earnings was retained, but it would allow the Secretary of State to make adjustments in situations like the one we face this year. I support the amendment as a sensible solution to the situation we are facing at the present time, but I reiterate my belief that, in future, we should abandon the triple lock and specifically the 2.5% uplift, and instead have a double lock based on earnings and inflation. If in future there is concern that earnings are again not increasing, rather than implement a 2.5% increase for pensions the Government should instead look at their economic and employment policies to ensure that earnings and pensions are both increasing at a decent rate.
My Lords, I support the amendments in the name of the noble Baroness, Lady Altmann. As I made clear earlier, I am in favour of a somewhat greater increase, but I am glad to have whatever is available. I want to make two additional points.
First, there is a lack of trust in the Government. The one way in which they could assuage that lack of trust is by accepting the noble Baroness’s amendment. They really need to explain to us what the downside is of accepting the amendment. One can understand that they do not want to do it, but they need to tell us the disadvantages of adopting the approach.
My second point is a sort of response to the noble Baroness, Lady Greengross. Characterising this as between generations is a category mistake. It is between people on low incomes and people on high incomes; it is between people without much money and people with wealth. That is the redistribution required. To characterise it in terms of generations is simply wrong.
My Lords, I again thank the noble Baroness, Lady Altmann, for all her work on this issue and the comprehensive briefing that she produced—it must have taken her a very long time, but it was extremely interesting. The issue of the uplift is cogently challenged by her presentation. I know that support for the triple lock has been from all parties in this House, but we are told that it must be suspended for another year in view of the anomalous rise in average weekly earnings, as presented by the Secretary of State in the other place. As the noble Baroness said, there was little scrutiny there. Not only that, but since the Bill went through the other place, lots of developments have occurred, such as a massive increase in energy prices, pressures on supply chains and inflation predictions, which together seem a strong reason for reconsideration of the decision taken. Having signed the amendment, I too will support it today and hope that it succeeds for that reason.
As the noble Baroness has pointed out, the rise in earnings is distorted by the economic impact of the pandemic. There is a way for the triple lock to be retained, as there are ways of allowing for the impact of the pandemic on the increase of average weekly earnings, as she has referred to in her paper. These adjusted figures are used by others, including the OBR and ONS, and are recognised as being a much more realistic basis for analysis of other economic indicators.
As many noble Lords have said during our debates on this Bill, it is essential that the triple lock continues. I will certainly speak with the noble Baroness, Lady Greengross, afterwards to hear her reasoning behind the point she made today. If we are not to lose value from the state pension, as has happened since 1979, future generations of pensioners will have even more need of a state pension that has kept up with living costs, as today many young people have no private pension provision at all.
We have all expressed that we are unhappy that pensioners are not being protected from imminent steep rises in living costs. As the noble Baroness, Lady Lister, said, they will face a bleak winter unless we can get this decision reconsidered. The Budget took no account of this and again leaves pensioners threatened with a crisis in the coming months. On the contrary, the Government have used this measure as a means of saving; dropping the triple lock and using 3.1% saves the Treasury £5.4 billion, £5.8 billion and £6.1 billion in the next three years. Yet again, as we have said in this debate, the UK has the lowest state pension in Europe, and it is still below 1979 levels in relation to earnings. In 2020 it was only 19% of average earnings, whereas it was 26% in 1979.
I very much support the alternative approach of the noble Baroness, Lady Altmann. I think most of us here agree that what is proposed in the Bill is woefully inadequate. I hope that all Members of this House will support this amendment and send it back for MPs to think again.
My Lords, I thank the noble Baroness, Lady Altmann, for explaining her amendments, and all noble Lords who have spoken. I welcome my noble friend Lady Ritchie to the debate and thank her for sharing her perspective on Northern Ireland with us and the position of women. That was very helpful.
We had a good discussion at earlier stages of the Bill about the way the Government have gone about finding an alternative to the triple lock which will deal in some way with the impact of the pandemic on earnings data. As the noble Baroness, Lady Janke, has just indicated, I do not think many of us are very happy with where the Government have landed; I think that is safe to say. I will not rehearse all the arguments from Committee, but I am going to summarise them because noble Lords have made some very important points about poverty. There is an additional dimension to this amendment about the question of principle.
The Government came to power on the back of a manifesto commitment to the triple lock. Labour also supported the triple lock at the last election. Therefore, for all of us, the starting point is that the triple lock should apply. We on these Benches accept that the earnings growth data have been distorted by the effects of the pandemic directly, and the effects of the furlough scheme and changes in hours. But that does not mean the Government should just ditch their manifesto promises.
“At the very least, Ministers should maintain an earnings link, explain their decisions, offer binding commitments to protect the triple lock and protect the incomes of less well-off pensioners.”—[Official Report, Commons, 20/0/21; col 63.]
Well, quite. Both in the Commons and in this House, Labour has made clear its view that the Government should have found a way to deal with this that maintained the earnings link. The importance of the earnings link has been very well explained by the noble Baronesses, Lady Wheatcroft and Lady Greengross, my noble friend Lady Lister, and others.
But how should that be done? In the Commons, Labour suggested using an average rise in earnings over a longer period of time. In this House, I first suggested that to the Minister not in this Bill but in the passage of the Social Security (Up-rating of Benefits) Act 2020. That was the emergency Bill designed to deal with the fact that earnings were negative last year, therefore something had to be done to uprate it. This year in Committee, again I raised the question of why the Government did not smooth the effects over two years, but I got no satisfactory answer and I accept that time has moved on. So where does that leave us?
The Government will say that we cannot pin down precisely the size of the pandemic effect on earnings growth. That is true, but the best we have is the work that the ONS has done. Its modelling stripped out the two main things: the base effects and the compositional effects. If noble Lords will forgive me for “nerding” for a moment, I will explain them.
The base effect is essentially that, a year earlier, people were on furlough and worked fewer hours; when you measure earnings a year later, more of them have gone back to work and are on full hours, so earnings appear to have jumped a lot. That is one effect. The compositional effect is a change in the composition of the workforce—people on lower incomes were more likely to lose their jobs in the pandemic.
The ONS modelled stripping both of those effects out to try to get a figure for real underlying earnings growth across the year to use as a reference point. It came up with a range for that underlying growth. The Government do not like it because they think it is not robust enough to use as a measure for uprating earnings. If they do not like those figures, I suggest that it is up to the Government to go away and find some other way to show that the earnings link is being maintained. Amendment 3 does not specify any figure, and Amendment 4 merely says that the Government should use a figure for earnings chosen
In the Commons, my colleague, the shadow Work and Pensions Secretary, Jonny Reynolds, said:
“I do believe there is a need to maintain the value of the state pension and the objectives of the triple lock are ones we should keep to”.—[Official Report, Commons, 20/9/21; col. 84.]
That is the problem with the Government’s approach in a nutshell. Their proposals in the Bill mean stepping away from the fundamental principle that pensions should keep up with earnings. They also breach the manifesto commitment to the triple lock, which, as my noble friend Lord Davies said, is a breach of trust with the electorate—that is the third, coming after the cut in overseas aid and the national insurance rise. There must be a better way than this, and this amendment directs the Government to find it. If they do not like this wording, they can bring back an amendment in lieu.
I realise that the Bill needs to be on the statute book by
For us, this is a matter of principle. It is not just about the amounts of money. That is why we are supporting this amendment, specifically on the earnings link for the state pension. The Government should find a way to keep their manifesto promise and maintain the earnings link, and to do so in an appropriate way. I hope the Minister will accept it.
My Lords, I thank the noble Baronesses, Lady Altmann, Lady Janke and Lady Wheatcroft, and the noble Lord, Lord Hain, for their amendment. The Government’s reasons for not adopting an altered measure of earnings have not changed. That includes the unacceptable level of risk that would be attached to changing the definition of earnings using the current legislation. I remind your Lordships again that the cost of failing to secure Royal Assent to this Bill by mid-November would be in the range of £4 billion to £5 billion.
I very much understand my noble friend Lady Altmann’s concern about a temporary suspension of the earnings link, for all the reasons she and others have so eloquently outlined. But the fact remains that the figures quoted from the Office for National Statistics have no official status and have been taken from a blog that the ONS published, alongside the usual earnings statistics, first in July this year and then in subsequent months.
The key reason why the Government cannot accept this amendment is that the ONS figures are just not robust enough to form the basis for an uprating decision. This is best demonstrated by two quotes from the ONS:
“The blog explains that there are a number of ways you can try to strip out these base effects, but there is no single method everyone would agree on. We have tried a couple of simple approaches. Neither approach is perfect … Our calculations of an underlying rate are there to help users understand base and compositional effects, but there remains a lot of uncertainty about how best to control for these effects, so they need to be treated with caution.”
Using a range of possible estimates based on a method that cannot be agreed on does not provide a sufficiently robust basis for making critical decisions about billions of pounds-worth of expenditure.
A further point is that the ONS has calculated its range of adjusted underlying earnings growth for a measure of regular pay. The usual measure of earnings used for uprating is total pay, which is regular pay plus bonuses, because this gives a more complete picture of earnings, as bonuses can play an important part in earnings. There are no such problems with CPI inflation, which is a robust national statistic and provides a clear and sound basis for this year’s uprating, with no need for any complex adjustments.
I must remind the House that this Bill is for one year only. From 2023-24, the legislation will revert to the existing requirement to uprate by at least earnings growth, and the Government’s triple lock manifesto commitment remains in place.
Finally, I point out that, if a percentage of 3.1% or more is applied in 2022-23 to the current rate of the basic state pension, this would mean that the full yearly rate will have increased since 2010 by £570 more than if it had been uprated by prices; that is over £2,300 pounds more in cash terms. In addition, people over state pension age are entitled to free winter fuel payments worth £2 billion every year, free eye tests and NHS prescriptions worth around £900 million every year, and free bus passes worth £1 billion every year.
My noble friend Lady Altmann talked about the cost-of-living crisis in relation to energy and inflation. Ofgem’s energy price cap has protected consumers from the recent fluctuations in wholesale gas prices. Millions of low-income households will be supported with the cost of essentials through the £500 million household support fund. This builds on the £140 warm homes discount, which helps 2.2 million low-income households with their energy costs, and the winter fuel payment, which provides £200 toward energy bills for households with a member at or above state pension age and £300 for households with a member at or above 80 years old.
The noble Baroness, Lady Lister, talked about not receiving a letter. I am assured that the letters have gone out. If, by the end of this debate, she still has not received one, I hope she will let me know and I will make sure this is rectified. I say the same to everybody in the House: I am sure that those letters have been sent. In the light of my remarks, I ask the noble Baroness to withdraw her amendment.
My Lords, I thank my noble friend for her response and all noble Lords who have spoken in this debate. I totally agree with the noble Baroness, Lady Sherlock, that this is a matter of principle. The noble Baroness, Lady Janke, and my noble friend Lady Wheatcroft talked about inflation pressures, which have risen significantly, making 3.1% clearly a real-terms cut in the state pension. The noble Baronesses, Lady Greengross and Lady Lister, talked about the historic precedent of removing the earnings link and the danger of setting that precedent to the rise in pensioner poverty. The noble Lord, Lord Davies, spoke about lack of trust. The noble Baroness, Lady Ritchie, talked about poverty, particularly for older women, and the impact in Northern Ireland.
The response to this is that we would be running an unacceptable level of risk in producing adjusted figures. The Minister is being asked to tell the House that there is no method that everyone could agree on; that no method is perfect, and therefore we will not do anything at all. That is not required for us to send this legislation back or to avert a legal challenge. Indeed, Amendment 4 explicitly tries to deal with that.
The state pension will always be a call on younger taxpayers and, with an aging population, it will always be a tempting target to raid. But the state pension is the basis of the majority of pensioners’ income in retirement, and it is part of the social contract in our welfare state, on which our society is based. It underpins the national insurance system. If we break that contract, even supposedly for just one year, I believe it will be setting a seriously dangerous precedent. Pensioners are not a cash machine for Chancellors to take money from when wanting to fund other projects or tax cuts elsewhere, especially not in the eye of a cost-of-living storm. I apologise to my noble friend, but I do not accept the responses that she has been asked to give us. I therefore want to test the opinion of the House.
Ayes 220, Noes 178.